Bank of England holds interest rate amid fears of rising inflation

The Bank of England has announced it is keeping the interest rate at 5% despite a worsening economic slowdown and painful job cuts in the housebuilding industry.

A report this week by British Chamber of Commerce warned of a serious risk that the economy could be about to enter a recession, and thousands redundancies were announced at major housebuilders Persimmon, Bovis Homes, Redrow and Barratt.

However, the Bank's Monetary Policy Committee's decision was widely predicted after inflation hit 3.3% last month.

Simon Rubinsohn, RICS chief economist, said: "Today's decision by the MPC to leave base rates on hold is understandable given the ongoing concern about the inflation outlook.

"But the RICS still believes that the weakening economic picture, as signalled most visibly by the deterioration in both business and consumer sentiment, will justify an easing in policy later in the year.

"Crucially, given Mervyn King's remit, there is at this stage very little evidence of second round effects from the jump in food and energy costs. That said, it is not surprising that the Bank wants a little more convincing that inflation expectations are not ratcheting upwards."

The Council of Mortgage Lenders said it had not expected a rate change, but released figures showing how a notional quarter or half point decrease or increase would affect various size mortgages (see file below).